How are you supposed to start investing? (2024)

On the Money is a new monthly advice column written by Nicole Dieker, a personal finance expert who’s been writing about money for over a decade. For Vox’s Money Talks interview column, she’s written stories about couples who run small businesses, navigate different relationships with spending, handle health insurance, and more. If you want advice on spending, saving or investing — or any of the complicated emotions that may come up as you prepare to make big financial decisions — you can submit your question here. Here, we answer two questions asked by Vox readers, which have been edited and condensed.

How do normal people invest in the stock market? I tried a daytrading app, but the whole experience seemed like gambling. I also opened an E-Trade account, but I was paralyzed by the amount of data it offered me and I felt too scared to use it. Is there a “set it and forget it” way to invest a portion of my monthly income without having to micromanage a portfolio?

There is, in fact, a “set it and forget it” way to invest your money.

It’s called a target-date index fund.

These funds are specifically created to handle the risk management involved in long-term investing. Let’s say you plan to retire in 30 years. Any money you put in your target-date fund this year is likely to be allocated toward higher-risk, higher-reward investments — the FAANG stocks, for example — but as your retirement date inches closer, the target-date fund will automatically rebalance your portfolio until more of your money is in lower-risk, lower-return stocks and bonds.

Some people argue that target-date index funds are too expensive for the value they provide. This has to do with something called expense ratios, which I’m not going to get into right now because it looks like you’re the kind of person who wants to deal with as few numbers as possible. Instead, I’m going to tell you that the people who want “set it and forget it” but don’t want to pay the higher fees associated with target-date funds often choose total stock market index funds instead. These funds match the performance of the entire stock market, and if you’re the kind of person who believes that — despite occasional periods of volatility — the market will continue to trend upward over time, a total stock market fund could be your best bet.

Now that I’ve answered your questions about how to invest without micromanaging a portfolio, I want to go back to your initial question. The truth is that many normal people don’t invest in the stock market. Just under 40 percent of American adults haven’t invested any of their money, according to a May Gallup poll — which means that you can live a perfectly normal life without ever purchasing a stock or bond.

The real question is whether that’s the kind of life you want to live. You are fortunate to be in a position where you have extra financial resources, which often correlates with the decision to invest in the stock market — but it doesn’t have to. You can read the Gallup poll in full if you want to understand the relationship between income and investing, but you don’t really need a poll to tell you that the more money you earn, the more likely you are to invest a percentage of your money. That said, plenty of people have the money to invest and still choose not to.

What do they do instead?

Keep reading.

Are there other ways to save for retirement besides investing in stocks and bonds, or am I beholden to the black box that is Wall Street?

I am so glad you asked.

There are many, many ways to save for retirement, especially once you get past the idea that your retirement money has to be stashed into a tax-advantaged savings vehicle like an IRA or a 401(k).

If you are absolutely committed to the whole retirement account thing — the IRAs, the 401(k)s, the SEPs and Simples and Roths — you can always put money into those accounts without investing it in stocks and bonds. Some brokerages will automatically stash your retirement contributions in a money market account, which is technically an investment and can lose value, but other brokerages have started allowing you to put your contributions into high-yield savings accounts or CDs. All of these options earn interest and allow you to benefit from long-term compound growth.

Putting your money in an IRA or 401(k) without investing it could be a smart move for people who are wary about Wall Street but are still interested in racking up tax breaks as a freelancer or making the most out of a company match. It’s also a good move for people who need some way of locking their money up until they retire. If you know you won’t be able to resist the temptation to spend every penny you earn, putting your extra pennies into a tax-advantaged retirement account — after setting aside enough cash for an emergency fund, of course — is one way to solve the problem. Since these kinds of accounts charge taxes and penalties on most types of early withdrawals — with a few exceptions, of course (and a few more exceptions if you have a Roth IRA) — stashing your money in a tax-advantaged retirement account could incentivize you to keep it there until you retire.

But IRAs and 401(k)s aren’t the only way to save for retirement. You could also invest in your career. Part of your retirement fund could be spent on turning yourself into the kind of employee or freelancer whose name is on the top of every hiring list — which could yield the kind of earnings growth that beats even the best stock market returns.

Other people may want to take some of the money they would have saved for retirement and put it toward their debt. If you’re paying more in monthly interest charges than you’re earning on your investments, for example, it might be time to temporarily reprioritize.

You may also want to put a portion of your retirement fund toward real estate, especially if you are in the position to buy your forever home. If you can pay off your mortgage as quickly as possible, you’ll have more money left over every month, helping you maintain financial security and avoid debt — and if you combine stable housing with a frugal, debt-free lifestyle and a flexible, recession-proof career plan, you might be in a position to achieve financial independence.

Many of us won’t make it that far, but that doesn’t mean that our only other option is to put all of our money in the stock market. You get to choose where you invest — in your career, in your relationships, in your neighborhood, or in the long-term potential of the global economy.

Sixty-one percent of American adults, according to Gallup, are betting on Wall Street.

Best of luck.